If I told you they use the helicopter after it's done printing, would this make you happy? The fed has the power to purchase assets such as government debt, with newly printed money. Not only does our dollar become worth less, but we also get to pay for this debt with the now devalued dollar, too. BTW our debt is ONLY $9 trillion. joy. Yea, some. The rest makes inflation. What's the argument?
That process is called an open market operation, and I already covered that when I said the Fed creates money by outright purchases. You're just not catching up to the discussion. They don't use printed money; it's all electronic. That's an issue of fiscal policy, not monetary policy.
I can accept that. We can cover technical details as we cross them. Ok, time to get busy. I deposit $100 with you. You loan out $20. I show up and want my $100 the next day, the credit you extended is not due in for 1 week. Do you (1) give me $80 and tell me to come back later, or (2) give me $100, thereby allowing $120 to exist in the system simultaneously? No, I can't take your $100, and loan out $20 and still provide your $100 on withdrawl demand. In order to do so, I would have to counterfeit the extra $20, which is illegal. , see above Not true. The bank could lend out deposits based on capital investment, or accumulated profit. The first banks stored and protected money, as well as provide additional services such as exchange. They were not necessarily lenders. Your "idle money" idea is ridiculous. When they loan out the $20 (as above), my $100 still exists. You're using the word "physically" as a technicality. It's all done electronically now. Why is it a short term store of value? How exactly do you think wealth is accumulated when you're promoting the idea that money has a half-life? It also represents income, payment for production, used for consumption, or saved as deferred consumption. Money is the basis of capital, not fractional reserve banking. Money (as a measure of wealth) is created by productivity and gains. If you grow 10 apples, and only consume 8 yourself, you have a surplus of 2. That is your excess production. It can be bartered, or in a system with a medium of exchange, turned into money, a store of value. Money (wealth) cannot be arbitrarily created by fractional math, computers, or printing presses. It's a moral hazard. That is where the phrase "printing" comes from generally at DP. It's referring to the creation of new money, without any productive basis. Money is destroyed by losses, by depreciation, and by perishable or consumed goods. Hence the need for constant production. If you use all your money, you have to produce more, or you can no longer consume. This is elementary stuff. I find your contention that only fractional reserve banking can produce money either intentionally misleading, or poorly informed. We produced money (wealth) long before banks.
I understand how fractional reserve banking works. But you're basing your argument upon my "supposed" ignorance, not on the merits or deficits of my position. Again, you're taking the phrase "printing" literally, and intentionally I believe. We're talking about the creation of new credit not specifically the physical federal reserve notes. A better question for you to answer (if you are going to answer directly any of mine), is how does new credit enter the system, and who gets to use this expansion first, before aggregate pricing catches up? More dollars chasing the same goods will raise prices (basic supply and demand). But the effect is not immediate, so who benefits from debt, credit and deficit spending? Not at all. Fractional Reserve Banking is monetary policy. Open Market operations enable fiscal policy.
That's where you're wrong. Banks have to borrow money to fulfill their reserve requirements. How the hell would a bank be able to counterfeit money? When they loan out the $20, the $100 only exists on the books as a liability. If you claim the $100, they have to come up with $20 by borrowing money because it doesn't actually exist. Again, there's no counterfeiting involved. It's a short-term store of value because money has to be either spent or invested. You can accumulate wealth through investments. Again, money doesn't just appear out of no where in fractional reserve banking; if there's a shortage, banks must borrow just like everyone else. There's no "fractional math" or "computer" tricks.
Hold on now, you're taking things out of context. You asked me how money was created. I gave examples of how money could be created electronically. Then, I made a point about hoe physically printing money doesn't affect the money supply. Then, Mr. Webwork came around and told me that I was wrong. So I had to prove him wrong. Are you following this? As long as marginal benefit outweighs the marginal cost, anyone can benefit from deficit spending. The problem is that people borrow money that they don't have and spend it unproductively on goods they can't afford. Investors and businesses use debt as a leverage all the time. Ever heard of "good debt"? You mean to say that open market operation enables deficit spending...which is not true. Primary market purchases done by the public sector, the private sector, and foreigners enable deficit spending. The Fed cannot participate in the auctions held by the Treasury.
Well, you have successfully managed once again to get the conversation further from my initial questions. Nonetheless, let's finish this up and move on. And they borrow from someone else who uses fractional reserve banking. They are using your $100 to create $120 in concurrent currency in the system, yes or no? I see, so they loan out money that doesn't exist, but you don't call that counterfeiting. That's totally not true. You're saying that there are no such thing as savings? That if I leave money in my wallet, without investing it, it will cease to have value? Please explain this process, and if you use the term inflation, I want you to define it. Of course, it's a sunshine system, which is why the FED always struggles during market corrections. When the sun is shining, banks can continue to borrow, if necessary at the discount window, but when the ability to borrow is based upon the rate of REAL savings and investment, and there is a contraction or disruption, suddenly that fractional reserve banking creates a crisis.
Yes. I am following that you refuse to answer my examples, and continue to make points on semantics, when we both know you are more than very intelligent and capable of discerning the meaning behind his language. You're avoiding the question again. We're not debating the merits of debt, we're talking about how debt enters the system, who gets first crack, and whether that conveys an advantage before aggregate pricing levels have had a chance to react to more dollars chasing the same goods. No, I said what I meant. Please review. In my previous post, you're still not addressing what money represents, and how more or less money is being created. The notion that banking creates and destroys money, not consumption or production is quite frankly, mind boggling.
So what? It's borrowed from a bank that has a surplus in their federal funds. No, they're creating $20 if they're making a loan of $20. The bank got a deposit of $100 and loaned out $20 of it. How is that loaning out money that doesn't exist? Yes, eventually, your money will become virtually worthless. The dollar loses value because of inflation, an increase in the general price level of goods. Fractional-reserve banking is unstable by nature. That's why monetary policy exists. Like I say, the Federal Reserve is a horrible system because it attempts to artificially stabilize something that is unstable.
I see, so banks cannot loan each other fractionally created money, they can only borrow from surplus. Is this what you are saying? Semantics, re-read my post. Slowly please. Because I do not now have $80 in the bank, I still have $100. So there is my initial deposit of $100, and $20 out on loan. $120, from a $100 deposit. A 20% increase in the amount of available funds. You are NOT this dense. Why? How does a coin lose value? It will always represent it's face value, it's durable, it's authentic and it's easy to move around. I'm leading you to the answer, getting you to write it however is a different challenge altogether. Between 1800 and 1890, money did not get less valuable, it actually became more valuable. How do you explain this? What causes the increase in the general price level of goods? You know I do not believe this, we've come full circle back to the beginning of our conversation in this thread and many others. What is inflation? I define it as monetary inflation. You define it as price increases. I've already debunked that (see the link in my second to last post). Fractional Reserve banking creates moral hazard. It's not unstable by nature, it causes instability. The FED does not seek to stabilize, it seeks to inflate. You can use any chart of CPI since 1913 (although the ones that start earlier are more fun) to see the effect the Federal Reserve has had on pricing. You cannot fractionally bank with a fiat currency. Every fiat currency eventually destroys itself from too much counterfeiting.
Who gets first crack of the debt? I'm not following this. What debt are you talking about? Well, it's not making sense. Please substantiate your claim. I already defined money for you, and explained to you how it gets created and destroyed. You just shrug it off and call it semantics.
The $20 in liabilities created by loans? Who profits from this $20 as a loan? Who has access to loans? If Fractional Reserve Banking maintains a balance between created and destroyed money, how is it that the money supply continues to increase? Isn't this a Ponzi scheme? Fractional Reserve Banking is Monetary policy. It is a system for the creation of new credit (money). I am saying that your explanation of how money is created and destroyed is preposterous. Do you or do you not believe that banks create and destroy money, not productivity and consumption? It's a simple question, requires a simple answer.
[I see, so banks cannot loan each other fractionally created money, they can only borrow from surplus. Is this what you are saying?[/QUOTE] And you have a problem with that? You are still the owner of that $100, but the bank only has $80. Just refer to my balance sheet example for Christ's sake. If the bank had $100, they wouldn't have to borrow any money. What are you, stuck under the gold standard? Money can maintain its value if prices of goods don't increase. Unfortunately, that wasn't a good enough reason to keep fiat money away. Why? Because the gold standard was unstable in a different way. It: 1) was more susceptible to bank runs 2) limited the government's ability to act flexibly when sticky prices occurred Well, since you like to refer to Wikipedia, here's one for you: http://en.wikipedia.org/wiki/Inflation Inflation is defined as the increase in the price of some set of goods and services in a given economy over a period of time. It is measured as the percentage rate of change of a price index. Burned by your own source. Or is that an exception? Yes, it's been very stable for the last 30 years, hasn't it? All of the reputable economists, even Milton Friedman, gives credit to the Federal Reserve for the stable inflation.
The fed is a joke and almost no one has any idea what they actually do. The fed has been doing a very poor job recently. Look at the value of the dollar and then get back with me. 99% of people think the fed is a part of the government but it's not. 99% of people kinda dislike the fed but think it's a good idea and yet again - have no idea why. The fact is 99% of people form very strong opinions on politics without having a freaking clue as to what they are talking about. I now return you to your regularly scheduled program of people pretending to know more than they do - enjoy.
The bank would collect the interest on the $20, so the bank would benefit from it. Under full-reserve banking, banks would collect interest as well, so there's no difference.The money supply continues to increase because the economy continues to expand. If the economy contracts, the money supply will decrease. Monetary policy is a policy. Fractional reserve banking is a financial system. So you're in denial since you can't accept facts. Show me where I made an error in my explanation of money creation. It is up to the market to decide whether it wants to make productive investments or not. People demand loans and create money. If they leverage debt to create more wealth, there is nothing wrong with that. Investors do this all the time. If they use the money to purchase unnecessary goods that they can't afford, they've made a poor financial decision. Let them suffer.
It's not true. That's what I have a problem with. But it's an unfunded liability yes? Or do banks have to secure financing every time they fractionally reserve bank and create money for lending? You can't be saying that, unless you are willing to admit that fractional reserve banking is not a zero sum game. I didn't bring up the gold standard. I'm not even talking about hard money in this thread, I'm asking you to justify your assertions on what the FED does. The gold standard is not susceptible to bank runs. That is why it is stable. You cannot loan out something you do not physically have. That was the whole reason for alchemy, the ability to use gold to purchase a larger quantity (of the much cheaper) lead, and convert this chemically into new gold. It was a pseudo-scientific way of trying to make gold a fiat currency. "Sticky prices". There is no requirement for government to act during times of inflation or contraction. History is quite clear that markets free of influence self-correct. Intervention creates booms and busts. Not the link I referenced. I was pointing to the thread where I debunked the quote you pulled from Wikipedia as being like most of the blather in this thread that betrays a lack of understanding of the most basic fundamentals of an economy. Price inflation is driven by monetary inflation. Particularly over-prolonged periods, such as since 1913. The market and business cycle naturally inflates, corrects and deflates, then inflates, corrects and deflates. You've claimed to have an understanding or appreciation for Austrian Economics. An inability to recognize my argument shows this to be untrue. What do you mean by this?
Why do I care what brand of ink they throw into the printing machines? The point is moot. You're talking about the actual physical process of the creation of money - I am talking about the consequences. Ready, since you have the answers to all, can you tell me why inflation has been spiraling upwards since the inception of the federal reserve? And who suffers from this inflation?
There emergency meeting this morning to cut the rate of 3/4 lowered the market like 50 points. (DID NOTHING) As again in my OP They know nothing.